Executive summary

On 11 December 2024, the United States Trade Representative (USTR) announced modifications to actions taken in the Section 301 of Trade Act of 1974 (Section 301) investigation of the People's Republic of China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation to increase tariff rates on five subheadings of the Harmonized Tariff Schedule of the United States (HTSUS). The subheadings cover certain tungsten products, wafers and polysilicon. The changes are set to take effect on 1 January 2025.¹

The decision to increase tariffs follows a review and public comment period. The USTR concluded that increasing tariffs on these specific products would support domestic industries, reduce reliance on Chinese imports and address national security concerns.²

Background

In September 2024, the USTR issued modifications to actions involving 14 product groups, either increasing Section 301 tariffs or granting exclusions. The actions were a response to a USTR notice from 28 May 2024, which covered 382 HTSUS subheadings and the 14 product groups.³ In the same notice, the USTR proposed increasing Section 301 duties on the additional HTSUS subheadings covering certain tungsten products, wafers and polysilicon.⁴ As a result, USTR opened a 30-day docket on 24 September 2024 inviting interested parties to provide comments.⁵

The modifications issued on 11 December 2024 are based on public comments. These include three subheadings under "other critical minerals" for tungsten products, with tariffs increasing to 25%, and two subheadings under "solar cells" for wafers and polysilicon, with tariffs increasing to 50%.⁶

The Federal Register Notice (FRN) notes that comments supporting the increase in tariffs on tungsten products emphasized the importance of these tariffs for the security and resilience of domestic supply chains in critical industries such as aerospace, automotive, defense, medical, and oil and gas. Some supporters suggested higher tariffs to counteract China's dominance and undercutting of domestic production. On the other hand, comments opposing the increased tariffs highlighted the limited availability of tungsten products outside of China, which houses roughly 80% of global tungsten reserves. Opponents also argued that higher tariffs would raise production costs, exacerbate inflation, harm US competitiveness and reduce US market share.⁷

The FRN emphasizes that nearly all comments supported increasing tariffs on polysilicon, noting that these tariffs were crucial for the development and growth of the domestic polysilicon industry and downstream products, including solar photovoltaics, semiconductors, automotive components, and various electronics components and devices. Supporters argued that increasing tariffs would bolster recent domestic investments and support additional domestic production. Similarly, the majority of comments supported increasing tariffs on wafers, stating that higher tariffs would enhance the effectiveness of the actions, support the domestic industry and strengthen alternative supply chains. Commenters provided that higher tariffs would counteract China's deemed unfair practices, allowing domestic producers to increase production and invest in additional capacity. Notable, some supporters suggested delaying the tariff increases or allowing certain exclusions to give domestic producers time to ramp up production, while others advocated for immediate tariff increases.⁸

Considering the comments, the advice of the Section 301 Committee, and President Biden's previous directive, the USTR decided to increase tariffs on the following Chinese-origin goods as of 1 January 2025:

The USTR has advised that it will continue to review, and potentially modify, actions based on public feedback and further analysis. It is important to note that the USTR has not yet released a formal exclusion process.

Action for businesses

Immediate actions for companies involved in the sector include:

• Closely monitor and participate in any exclusion process the USTR provides to potentially mitigate the impact of increased tariffs.
• Review tariff classifications relevant to the targeted strategic sectors, evaluate the impact, and take actions for supply chain or manufacturing adjustments to mitigate potential tariffs.
• Map the company's complete, end-to-end supply chain to fully understand the extent of products affected, potential costs, alternative sourcing options, and alternative manufacturing options, including relocation of specific production lines outside of China with a focus on country-of-origin planning.
• Identify strategies to defer, eliminate or recover the excess duties paid under Section 301, such as the use of bonded warehouses, Foreign Trade Zones (FTZ), substitution drawback, and taking advantage of eligible Free Trade Agreements and Chapter 98 (Special Classification Provisions).
• Explore strategies to reduce the customs value of imported products subject to the additional duties, such as reevaluating current transfer pricing approaches, reviewing potential to bifurcate product and non-product costs, and considering First Sale for Export into the US.
• Review the mechanics for reporting any transfer pricing adjustments to US Customs, ensuring compliance with specific rules for adjustments made after importation, and plan for potential refunds on duties paid if transfer prices are reduced.
• Review contracts with suppliers and customers to understand who has liability for increased duties and whether there are opportunities for negotiation.
• Develop compliance processes and procedures that demonstrate reasonable care in the face of increased Customs enforcement and scrutiny.
• Assess whether US Customs Bonds are adequate to support the increase in tariffs.
• For companies with FTZ admissions of products covered by the Section 301 tariffs, consider the impact and timing of importing these products after the tariffs are in force.